Mass. Health Care Costs Rose Sharply Again In 2022

Consumers, Hospitals Lose Ground As Total Spending Increased 5.8 Percent

MARCH 13, 2024…..As policymakers this week examine a law meant to keep health care cost growth within sustainable bounds, a new report makes clear that the health care sector has a double-sided problem — the cost of care is pushing it out of reach for many Massachusetts residents and draining the wallets of others, but profitability is down at hospitals across the state.

The Center for Health Information and Analysis, created under a 2012 cost containment law, released its annual report Wednesday examining health care spending trends in 2022. The detailed report covers a year that saw record-high COVID-19 case counts in the first quarter, followed by a decline in the number of cases and their severity through the rest of the year.

“Health care providers faced negative margins and system-wide capacity strains. At the same time, Massachusetts residents and employers faced growing health care affordability concerns due to rising premiums and cost-sharing. Adding to financial pressures, inflation peaked in 2022, rising to the highest rate in decades,” the agency wrote.

Four years after the pandemic pushed hospitals to the brink and forced the state to open field hospitals at places like Worcester’s DCU Center, the industry is grappling with another capacity crunch. Not only is there a shortage of nurses, but facilities are also contending with a backlog created when patients can’t promptly be moved from a hospital to a nursing home or other post-acute care setting. And the financial woes of Steward Health Care, which threaten access to care for hundreds of thousands of residents, have deteriorated to near crisis levels and attracted new attention to the sector’s financial health.

CHIA’s annual report estimated total health care spending in Massachusetts at $71.7 billion in 2022, and a per capita health care expenditure of $10,264 per resident. Total health care spending was up $3.9 billion (up 5.8 percent on a per capita basis) over 2021’s level — well in excess of the state’s 3.1 percent benchmark for health care cost growth.

CHIA said the 5.8 percent growth rate in 2022 represents the largest one-year jump since measurement began in 2012, aside from the “anomalous spending growth in 2021 driven by the pronounced effects of the pandemic.” Health care spending shot up 9 percent in 2021 after posting a 2.3 percent decline in 2020.

The 2022 growth in health care spending was below both the rate of growth in the Massachusetts economy broadly (7.2 percent) and regional inflation (7.1 percent), CHIA said, but outpaced growth in both national wages and salaries (5.1 percent) and national health care spending measured by the Centers for Medicare & Medicaid Services (4.1 percent).

The largest contributors to the 2022 expenditure increases were pharmacy spending and non-claims payments, CHIA said.

“Pharmacy spending has continued to increase consistently, and on both a gross (+8.8%) and net-of-rebates (+8.3%) basis, was the largest contributor to the overall THCE increase in 2022,” CHIA said, referring by acronym to total health care expenditure. “Non-claims payments were the second largest contributor to the THCE increase in 2022, growing 23.3%, driven by $621.5 million in one-time COVID-19 supplemental payments made by MassHealth to support the financial stability of hospitals pursuant to federal (American Rescue Plan Act, ‘ARPA’) and state legislation.”

Hospital services accounted for the greatest share of 2022’s total health care spending, with outpatient spending increasing 5 percent from 2021 and inpatient spending declining 1.4 percent.

Spending for physician services was essentially flat (down 0.1 percent) between 2021 and 2022, CHIA said, and spending on other medical services like skilled nursing or home- and community-based services was up 4.4 percent. Spending for other professional services, including care provided by a licensed practitioners other than physicians, grew 6.9 percent.

The CHIA report found that overall acute hospital profitability, measured by the median total margin, decreased by 9.2 percentage points and went into the red, from 5 percent in hospital fiscal year 2021 to -4.2 percent in HFY 2022. The statewide median operating margin was -1.3 percent in 2022, a drop of 2.1 percentage points from 2021, while the median non-operating margin was -0.4 percent and down 3.4 percentage points from 2021.

Acute hospital aggregate total operating revenue increased by 5.5 percent, but could not keep up with aggregate expenses that increased 8.9 percent and ultimately exceeded total operating revenues by $460 million, CHIA said.

CHIA’s report also showed that the median total margin for nursing facilities declined from -0.9 percent in 2021 to -3 percent in 2022. That metrics has bounced around in recent years. It climbed from -1.7 percent in 2019 to 1.3 percent in 2020 before starting another decline.